What is the effect of recording a purchase of inventory on credit in the trial b

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Question: What is the effect of recording a purchase of inventory on credit in the trial balance?

Options:

Correct Answer: Increase in assets and increase in liabilities

Solution:

Recording a purchase of inventory on credit increases assets (inventory) and increases liabilities (accounts payable).

What is the effect of recording a purchase of inventory on credit in the trial balance?

What is the effect of recording a purchase of inventory on credit in the trial balance?

Step 1: Understand that when a business buys inventory, it gets more products to sell. This is an increase in assets.
Step 2: Recognize that if the purchase is on credit, the business does not pay cash immediately. Instead, it owes money to the supplier, which increases liabilities.
Step 3: Identify that the inventory account (an asset) will increase by the amount of the purchase.
Step 4: Identify that the accounts payable account (a liability) will also increase by the same amount, reflecting the debt to the supplier.
Step 5: Conclude that in the trial balance, the total assets will go up, and the total liabilities will also go up by the same amount.

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